CWG Market Commentary: Summer Marches on During These Trying Times
Main Street USA continues to cope with a variety of concerns:
China is in recovery mode reporting +3.4% GDP growth in Q2, while the rest of the world saw negative numbers. GDP in the U.S. -32.9%.
We await the next phase of the Federal aid package. Negotiations between the House and Senate are continuing beyond the July 31st date, when supplemental unemployment benefits ended.
What were once temporary fixes to shore up workers and business balance sheets now need another round of financing if this recession is to be arrested.
On Wall Street, the S&P 500 nears its February highs of 3393.52, while July finished +1.2% YTD.
Growth stocks carried the heavy load, while more cyclical sectors continue to swoon.
The Fed pumps trillions into the money supply and bond markets helping asset prices rise.
Commodities have come to life.
The U.S. dollar index has begun to retreat from March highs of 102.99 and the July 30th low was 92.55.
Gold has run up as a safe haven along with silver.
U.S. Treasury yields are scrapping along at historic lows.
10-year U.S. Treasuries yield +0.052%, Japan 0.00%, France -0.23%, Germany -0.55%, and U.K. +0.08%.
Here is a rundown of various index returns through July 31st:
Markets climb “a wall of worry” and trends can continue for long periods.
Individual investors as measured by AAII sentiment figures are extremely bearish, with 20% Bulls and 48% Bears.
Insider selling is rising along with stock prices.
Economic uncertainty abounds.
Volatility has dropped with VIX down to 23.76, down from 85.47 on March 18th. This is a bullish factor.
The balance of the year hinges on a virus cure/vaccine creation, Fed policy and election results.
If November elections bring a completely new Administration, we expect higher taxes, more regulations and a slower recovery.
Value as measured by IWD is -12.99% YTD versus Growth/IWF +18.12% in this post COVID-19 market. This is an historic divergence.
As one of our research partners recently stated, “a 0.51% yield on the 10-year U.S. Treasury implies the Fed has fixed asset values, but not the economy.”
Given negative “real” yields on government bonds, inflation of hard asset prices has begun.
The Fed still targets 2% inflation and is moving more aggressively to achieve it.Enjoy the balance of your summer!
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Executive Director & Investment Committee Chairman